The rand slumped to its weakest level on record against the dollar as a diplomatic row between South Africa and the US simmered, putting trade of as much as R400-billion at risk.

South Africa’s preferential access to US markets under a two-decade-old trade agreement is in focus after the US ambassador to Pretoria, Reuben Brigety, accused the country of supplying arms to Russia. The nation’s Presidency described the comments as “disappointing,” adding that no evidence had been produced to back that up but that the countries had agreed on an independent investigation into the matter.

“The political stakes are high, with trade deals and market access all now in question,” economists at Rand Merchant Bank wrote in a client note. “This will add an additional layer of risk until the debate around this has cleared, and the rand should reflect that risk premium.”

The South African currency weakened 0.8% to 19.3614 per dollar by 9:04 a.m. in Johannesburg, breaching the all-time low of 19.3508 set during the Covid-19 lockdown in April 2020. Yields on benchmark government bonds due 2032 rose 12 basis points to 11.72%, adding to Thursday’s 34-point jump.

The ambassador’s claim came with the rand already under pressure because of ongoing energy shortages that are undermining the economy, with investors asking questions about President Cyril Ramaphosa’s grip on his administration. The currency has now plunged 5% since Monday, heading for its biggest weekly decline in a year, while the cost of hedging against rand declines in the options market has soared the most since March 2020.

Relations between South Africa and the US — its second-biggest trading partner after China — have soured over Pretoria’s insistence that it is taking a non-aligned stance toward Russia’s war in Ukraine. Brigety alleged that the armaments were collected by a Russian ship that docked at the Simon’s Town naval base in Cape Town in December.

State Department spokesman Vedant Patel wouldn’t be drawn on whether the US would consider sanctions against South Africa should the ambassador’s claim prove true, but added during a regular State Department briefing Thursday that the US had “serious concerns” about a sanctioned Russian vessel docking in a South African port.